The Political Economy of Mexican Oil

by Mateo Pimentel / June 5th, 2014

In 1867, Karl Marx observed that wealth “presents itself as ‘an immense accumulation of commodities,’” specifically in societies where the capitalist means of production reigns. More than two centuries have passed since Marx treated industrializing Continental economies in his writing, and commodities still reveal a great deal about capitalist societies, their politics, their economies and their wealth today. This philosophy very much encompasses the highly commodifiable petroleum reserves in Latin America, and the countries that house them. When explored in its national and social context, oil evinces a preeminently dynamic relationship there: The country influences its oil, and the oil pervasively imbues the politics of that country. One current and pressing example of this is Mexico.

The old nationalist spirit in Mexico still simmers today, and oil does not escape its gravity. Today, populist stirrings incite the emotions of many who fight tooth-and-nail to prevent the foreign plunder of their precious petroleum. This partly prevents Mexico from exploring partnerships with big oil and its private firms on a governmental level. Of course, big oil is poised to work with Mexico on increasing its extraction, alleging to increase both efficiency and efficacy as tradeoffs.

The typical question that emerges is whether or not anti-liberalization and populist sentiments outweigh the costs of exploring mutual endeavors with private foreign oil multinationals in Mexico. Certain political leadership in Mexico also pits plunder, and the resulting doomsday scenarios, against public control in an attempt to garner votes during elections. Indeed, this may be just another false dichotomy disseminated for control. Nevertheless, Jose-Pablo Buerba, a professional international political economist hailing from Mexico City, agrees that the complete liberalization of its oil cannot be considered the only alternative Mexico has to the inadequacies of existing Petróleos Mexicanos (PEMEX) extraction techniques.

Some specialists argue that companies like Chevron have the facility, the money and the technology necessary to help Mexico shore-up its extraction inefficiencies with dispatch. For these reasons, experts claim that Mexico ought to explore public-private partnerships (PPPs). The philosophy behind this solution is simple: Private firms take care of costly extraction, alleviating the economic burden placed on the people. One alternative, this gambit suggests that a more efficient extraction of precious oil facilitated by private multinationals could best benefit the Mexican people. Thus, it pretends a viable alternative to the inefficient and costly state-owned/state-run system now in place. Despite all plausible viability, Mexico would have to explore PPPs and to grant access to oil stores—a thing the public is unlikely to support.

That Mexico does not benefit from its state-owned oil as it would were private firms on the job is not such a simple claim to make, especially given what freelance journalist Dale Quinn reports about the 60% of Mexico’s workers who do not pay taxes. In a country of some 121 million, such large amounts of unpaid taxes must affect the state’s ability to fund things like filling potholes, let alone a more efficient extraction of its petroleum. This is not to say that the majority of the Mexican public is somehow at fault, or blameworthy, for PEMEX issues simply because they elect not to pay taxes. Instead, it merely broaches the fact that if funding is at the root of the problem of extraction inefficiencies, and if 6 of every 10 workers do not pay taxes, it does not necessarily follow that nationalization is itself the smoking gun in this quandary. For that matter, there is an absolute need to inquire as to how much the existing extraction inefficiencies stem from shortfalls in funding or rampant corruption, and not simply a lack of technology, expertise or capability that many take for granted when evaluating PEMEX.

A World Bank study performed in 2010 indicates that from 1999 to 2006, Mexico’s informal economy approached 30% the value of its 1 trillion dollar GDP. As Quinn says, the informal economy’s “shadow” in Mexico is “substantial.” One Mexican politician, Oswaldo Barragán Silva, agrees with an observation made by Buerba: The current inadequate Mexican tax base formed by the regulated economy limits the money that replenishes federal funds, effectively increasing the tax burden on the formal sector of the economy as a result. This subsequent effect also hinders Mexico’s competitiveness within Latin America, historically the most economically developed trade region in the Third World.

Buerba also expressed some dissolution with Mexico’s new tax reform policy and the direction in which it heads. It centers on current taxpayers paying even more taxes. How will this affect Mexico’s decisions regarding seemingly viable PPPs solutions to extraction inefficiencies with oil? Furthermore, if the informal economy in Mexico offers the public the ability to work and to grow without real incentive to pay taxes, the assumption is that the formal economy is unattractive, or that it offers relatively little incentive for participation. As the tug-of-war continues between the two forms of economy, it is important to ask if the PPPs solutions proffered by specialists are not actually solutions to the extraction problem in question, but merely options that could enrich firms like Chevron at a time of incredible economic strife in Mexico.